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48 TAX AUDIT PROBLEMS AND SOLUTIONS
BY CA NITESH MORE, KOLKATA
INDEX
| TECHNICAL ISSUES | OTHER ISSUES |
| 1. Steps for Filling Online Tax Audit Report 2. Software Requirements 3. Problem in Slowdown of System 4. Problem of Negative Figures 5. Problem of Providing Quantitative Details 6. Problem in Entry of Large No. Of Fixed Assets 7. Problem in Viewing Stock Figures 8. Problem of Depreciation in Webtel Software 9. Problem of No Space for Commodity 10. Problem in Calculation of NP Ratio 11. Problem of Blank Fields in Saved Draft Xml File 12. Problem of Viewing Data of Xml before Uploading 13. Problem of Printing/Saving Uploaded Xml File 14. Problem of Fakepath 15. Problem in Viewing Xml File from Client's Login 16. How to Print Uploaded Xml Files 17. Problem in Getting Activation Link/SMS for Completing Registration 18. Unable to See Xml in Assessee's Login 19. Non Acceptance of Negative Figures in Form 29B 20. Use of Special Characters 21. Problem of Non Generation of XML 22. Problem of Swapping Of Due Date and Actual Date 23. TAR Rejected By Assessee If Uploaded Again | 1. No. of Tax Audit a CA can Sign? Issue of section 44AD 2. Online Filling, Date of Signing and Date of Filling 3. Can a Partner Sign On Behalf Of Other Partners? 4. Can Return Be Filed After Due Date 5. ITR 7 to Be Filed Online? 6. Mandatory E-Filling of Trust, Society 7. Responsibility of Tax Auditor for Delay in Uploading 8. Penalty for Non Furnishing of Report 9. Waiver of Penalty for Non Furnishing 10. Format of Maintenance of Records of Tax Audit 11. Communication with Previous Auditor 12. Should CA Accept Tax Audit If Undisputed Fees of Previous Auditor Not Paid 13. Tar of Pvt Ltd Company 14. Address for NRI Director in ITR 15. Pan of Relative for Unsecured Loan 16. Return Can Be Uploaded Before TAR 17. Problem of Three Tax Auditors of Same Assessee 18. Problem of Different Methods of Valuation of Stock in Two Firms 19. Approval of Tar by Assessee Is Mandatory 20. How to Show Additional Depreciation 21. Date Of TAR Vs Date Of Furnishing TAR 22. Format For Tax Audit U/S 44AD |
FREQUENTLY ASKED QUESTIONS ON E-FILLING OF TAX AUDIT REPORTS - TECHNICAL ISSUES
1. STEPS FOR FILLING ONLINE TAX AUDIT REPORT
Q1. What are the steps to be followed for E-filling of Tax Audit Report?
Ans. Step 1- One Time Registration of Chartered Accountant at E-filling website
Step 2 – Login to Assessee account at e-filling website and Add CA
Step 3 – Downloading, Preparing Tax Audit Report Utility & Generating XML file.
Step 4 – Uploading XML file at E-filling website from CA's Login Id
Step 5 – Approval of form uploaded by CA at E-filling website from Assessee's Login Id
Step 6 – Do not forget to file Income Tax Return in Relevant ITR separately
2. SOFTWARE REQUIREMENTS
Q2. What are operating system and runtime environment requirement for E-filling of Tax Audit Report?
Ans. Operating System – Windows XP with Service Pack 3/ Windows 7/ Windows 8.
Runtime Environment – JRE 1.7 Update 6 and above, 32 Bit is required to run applets for offline forms to work.
3. PROBLEM IN SLOWDOWN OF SYSTEM
Q3. Our system becomes very slow during working on e-utility. What should we do?
Ans. Remove all old versions of Java to improve performance. Better use Google chrome. Can also use Mozilla Firefox.
4. PROBLEM OF NEGATIVE FIGURES
Q4. System is not accepting negative figures in brackets i.e. "()". What should we do?
Ans. Use negative sign. i.e. minus "-"
5. PROBLEM OF PROVIDING QUANTITATIVE DETAILS
Q5. Due to nature and complexity of the business of the assessee, we do not have quantitative information about the stock. The software is not accepting any comment and it is accepting only numeric value. What should we do?
Ans. Kindly note that Quantitative details of only principle items is to be given. However, in my opinion, if details are not available,
a) Write nil in online form 3CD &
b) Report why quantitative details is not provided in the following two places:
i) In paper form 3CD &
ii) Notes to accounts
c) The Following Statement Should Be Written In Paper Form 3CD As Well As Notes: "Due To Nature & Complexity of Business of Assessee, It Is Not Possible To Provide Quantitative Details"
6. PROBLEM IN ENTRY OF LARGE NO. OF FIXED ASSETS
Q6. An assessee had purchased, say 5000 assets. His details of purchase are there in schedule. Online form 3CD again requires filling each purchase. It is a huge task resulting duplicity of work.
Ans. In view of our time constraint, such fixed assets may be grouped into different blocks of assets and each of these groups can be further divided into 2 parts.
i. Assets put to use on or before 2nd October: For ease of entry in online form 3CD, we will argue that all assets were put to use on 2nd October, wherever possible.
ii. Assets put to use after 2nd October (eligible for half of depreciation): For ease of entry in online form 3CD, we will argue that all assets were put to use on 31st March, wherever possible.
It is also advised to attach the working of calculation of depreciation under the Income Tax act, 1961 as a schedule so that breakup of each group is easily visible to the IT department.
The above can be summarized in the following steps:
Step 1 - All fixed assets may be grouped into different blocks of assets.
Step 2 - Each of these groups can be further divided into 2 parts. (i) Assets put to use on or before 2nd October (ii) assets put to use after 2nd October (eligible for half of depreciation)
Step 3 - For assets brought on or before 2nd October, we can argue that those assets were put to use on 2nd October and accordingly relevant entries can be made in the online form 3CD.
Step 4 - For assets brought after 2nd October, we can argue that those assets were put to use on 31st March and accordingly relevant entries can be made in the online form 3CD.
Step 5 – Sale of assets for each of group should be entered in a separate row while filling online form 3CD.
Step 6 - It is also advised to attach the working of calculation of depreciation under the Income Tax act, 1961, as a schedule, so that breakup of each group is easily visible to the IT department.
7. PROBLEM IN VIEWING STOCK FIGURES
Q7. I filled stock details in point 28A. When after validating and saving, I reopen the form; only one stock figure is displayed.
Ans. It is the inherent problem of the software but your xml file contains the correct data. Open the xml file in Internet Explorer and check it. You can edit xml file, however you have to adopt unceremonious way to edit the xml file for the necessary correction for the item in subsequent rows of point 28A. Therefore it is advised to fill up point 28A before filling any other point from point 7 onwards.
8. PROBLEM OF DEPRECIATION IN WEBTEL SOFTWARE
Q8. We have received demand relating to AY 2012-13, for almost for all companies for which income tax return were filled using Webtel software. The demand pertains to non-deduction of deprecation u/s32 in the return processed u/s 143(1) by CPC Bangalore, as claim by us in ITR 6. I just want to know if any other user of Webtel are also facing same problem.
Ans: The Problem Was Faced Many CA Using Webtel Software Due To Non Updation. I Suggest Submitting Revised Return or Making Rectification U/S 154.
9. PROBLEM OF NO SPACE FOR COMMODITY
Q9. In online Form 3CD, nature of business is to be mentioned i.e. Trading/Manufacturing & Retailer/ Wholesaler, but there is no space given for a particular commodity, say, cloth/ medicine/ cement. What should we do?
Ans. You can select, say, retailers & thereafter choose others (i.e. 104, 204, etc as applicable).
10. PROBLEM IN CALCULATION OF NP RATIO
Q10. If any businessman having a cloth business & also keeps photocopy machine/ agent of LIC, the income from photocopy machine / commission received from LIC is used for calculating the NP ratio. If so, then in this case GP ratio is less then NP ratio. So what to do about it?
Ans. You have to calculate NP ratio as a whole of the business for which tax audit was conducted.
11. PROBLEM OF BLANK FIELDS IN SAVED DRAFT XML FILE
Q11. When we reopen draft saved xml file, many fields which we had already entered is showing blank.
Ans. The software has some inherent errors as a result when we reopen draft saved xml file, it shows blank i.e. we have to re-enter the fields again. These fields are 7(B), 8(B), 9(A), 10, 11(D), 12(B), 21(Notes), 22(A), 22 AND 23.
12. PROBLEM OF VIEWING DATA OF XML BEFORE UPLOADING
Q12. How we can view data of XML before uploading?
Ans. You can view the xml file of tax audit report prepared in e utility of department. CA P.K. Agarwalla has prepared the screen shots of the process to view the same. The process is as follows:
Go to Programme à Microsoft Office àMicrosoft Office Access 2003/2007 à New blank data base àClick blank data base à A window with file name database1.accdb will appear on the right hand side pane. à Click on create. Your new date base is saved by default in my Documents. (You may save the same to your choice folder)
A new data base is opened. Go to and click External data à Click XML file>Browse the xml file for which you want to create/view or save the data àClick OKàImport XMLàClick OKàCheck the box "Save import steps"à Close.
Your data base is ready, on the left hand side pane the indexes for "All Tables" do appear. By clicking any Table/ any point you can easily view and save its contents presently appearing in the XML file. Once the xml file is saved and the data base is reopened it will show the updated entries lying in the XML file. If some member finds any error in the tables he can easily make corrections opening the utility.
13. PROBLEM OF PRINTING/SAVING UPLOADED XML FILE
Q13. There is no provision for saving or printing downloaded Forms 3CB-3CD, or XML file.
Ans. U can save the work in middle by using "Save Draft" Button. To view the print option opens the xml file in Microsoft Access 2007 using new projects. U can find the Data in tabular form.
14. PROBLEM OF FAKEPATH
Q14. When we are uploading the 3CA and 3CD online one error is coming cannot read fake path file. I have placed the XML file in c drive fakepath folder and using Google chrome for that. Please help on the issue.
Ans. Kindly check the name of folder is "fakepath" and not as fake path, in C drive.
15. PROBLEM IN VIEWING XML FILE FROM CLIENT'S LOGIN
Q15. We uploaded form 3CD of a client. When it is viewed from the client's login (i.e. for approving or rejecting), the dates in point no. 16(b) of form 3CD is getting interchanged (i.e. in the due dates column actual dates are seen and vice versa). But there is no mistake at our end. We have filled in the data in the income tax offline utility correctly and generated xml.
Ans. Your XML File contains the right data. Do not worry, upload it.
16. HOW TO PRINT UPLOADED XML FILES
Q16. CA has no option to print uploaded xml files. How to print?
Ans. CA has no option to print uploaded xml files. However, it can be printed from assessee's login id, even before approval by assessee as the said xml file can be downloaded, from assessee's login id, in the pdf format by default.
17. PROBLEM IN GETTING ACTIVATION LINK/SMS FOR COMPLETING REGISTRATION
Q17. A Chartered Accountant in practice registered himself with his DSC in the e-filing website. But he neither received any sms nor any activation link in his e-mail. When he tried again to register himself, the message was that he is already registered. But when he tried to log in, it was informed that the link is not activated. What should he do now?
Ans. Go to login page and enter your User ID i.e. ARCA(Mem. No.) e.g. ARCA300700 and enter your Password as given then click on "Resend Activation Link". You will get a mail from the site. If it does not work then reset your Password by sending mail at validate@incometaxindia.gov.in.
18. UNABLE TO SEE XML IN ASSESSEE'S LOGIN
18. I had uploaded one Form 3CD, 10 days back and same was reflecting in my log in and I also received message for uploading. Now when I go to assessee log, same form is not available for validation. When I try to re-file from my log in I am getting massage that you are already submitted and assessee has not rejected/accepted.
Ans. Kindly Go to Work lists and approve it.
19. NON ACCEPTANCE OF NEGATIVE FIGURES IN FORM 29B
Q19. In the department utility, the point no.9 of Annexure A of Form 29B is not accepting negative figures.
Ans. Kindly Type 0, Until Such Inherent Error in Software Is Rectified By Department
20. USE OF SPECIAL CHARACTERS
Q20. Can we use special characters while typing address in different places of online form 3CD?
Ans. No, special characters are not allowed while typing address.
21. PROBLEM OF NON GENERATION OF XML
Q21. The department utility is opening the saved data and saving draft successfully but it does not generate XML file when we click generate XML file
Ans. First validate it and generate
22. PROBLEM OF SWAPPING OF DUE DATE AND ACTUAL DATE
Q22. I have noticed that under the Clause No. 16(b) there is an error in the utility. The columns of due date and actual date for payments as show in the utility have been reversed against the actual data being generated in the XML file. The column headers should be swapped. The same is also evident from the form being generated at the time of approval.
Ans. This is the inherent problem. Kindly do not swap the dates at the time of data entry. IT department had been communicated with such problems.
23. TAR REJECTED BY ASSESSEE IF UPLOADED AGAIN
Q23. If a TAR is rejected by assessee and uploaded again, then an error message comes.
Ans. This is the inherent problem. Kindly download and fill up fresh form.
FREQUENTLY ASKED QUESTIONS ON E-FILLING OF TAX AUDIT REPORTS – OTHER ISSUES
1. NO. OF TAX AUDIT
Q1. Whether Tax Audit Report u/s 44AD etc will be counted in the specified limits of 45 Tax Audits?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008, these will not be included and you can file unlimited such Tax Audit Reports
Q2. What are the limits on signing of Tax Audit Report?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008,
a) A CA can sign up to 45 Tax Audit.
b) In case of Partnership Firm, limit will be 45 / Partner.
c) Audit U/S 44AD, 44AE, 44AF will not be included in the limit. (FROM FY 2012-13, SEC 44AF ISNOT APPLICABLE)
2. ONLINE FILLING, DATE OF SIGNING AND DATE OF FILLING
Q3. What are the Tax Audit Reports which are to be compulsorily filed online?
Ans. As per Notification No. 34/2013 dated 01/05/2013, & Notification No. 42/2013 dated 11/06/2013, Audit reports under Sections 10 (23C) (iv), (v), (vi) or (via), 10A, 12A (1)(b), 44AB, 80-IA, 80-IB, 80-IC, 80-ID, 80JJAA, 80LA, 92E or 115JB are to be filed electronically. (It covers audit report u/s 44AD, 44AE, 44AF also) (FROM FY 2012-13, SEC 44AF is not applicable)
Q4. Should we sign Tax Audit Report on 30th September?
Ans. As the word "before" has been used in sec. 44AB, we should not sign Tax Audit Report on 30th September. You should sign Tax Audit Report before 30th September, since the assessee is required to "obtain" Tax Audit Report before the due date i.e. 30th September.
Q5. Where audit is to be conducted u/s 92E, what is the last date of filling online Tax Audit Report?
Ans. Normally, Tax Audit Report is to be submitted by 30th September. However, for these assesses Report u/s 92E as well as Tax Audit Report can be filled by 30th November.
3. CAN A PARTNER SIGN ON BEFALF OF OTHER PARTNERS
Q6. Please advice in case of partnership firm can only one partner sign all the reports?
Ans.
a) Clause 12 Of Part I of Schedule I of Chartered Accountants Act allow a partner to sign on behalf of (i) Other Partner (ii) Firm
b) Sign can be either digital or physical
c) In my view, one partner can sign form 3CD etc. keeping in view the limit of 45 audits per partner.
[Clause 12 of Part I of Schedule I of Chartered Accountants Act states that "A CA in practice will be guilty if he allows a person not being a member of the institute in practice, or a member not being his partner to sign on his behalf or on behalf of his firm, any balance-sheet, P&L a/c, report or financial statements"]
4. CAN RETURN BE FILED AFTER DUE DATE
Q7. Can Income tax Return be e-filed after 30th September? However we will file Tax Audit Report within 30th September?
Ans. Yes, Online Tax Audit Report is to be filed by 30th September to avoid penalty of Rs. 1.5 Lakhs or ½% of Turnover, whichever is lower. However, return may be filed later. However, such return will be treated as belated return.
5. ITR 7 TO BE FILED ONLINE?
Q8. Whether e-Filing of ITR 7 For AY 2013 - 14 mandatory or can we file paper returns also?
Ans. It Is Mandatory To Submit Online
6. MANDATORY E-FILLING OF TRUST, SOCIETY
Q9. Are All Charitable Trust and Cooperative Society's Income Tax Return Are to E-File?
Ans: The Charitable Trusts etc. are Required To File Return Online Also.
7. RESPONSIBILITY OF TAX AUDITOR FOR DELAY IN UPLOADING
Q10. Is tax auditor responsible for delay in uploading of Tax Audit Report?
Ans. Guidance Note on Tax Audit states that normally, it is the professional duty of the CA to ensure that the audit accepted by him is completed before the due date. Hence, yes, if delay is attributable to his part.
8. PENALTY FOR NON FURNISHING OF REPORT
Q11. What are the penalties for non furnishing a Tax Audit Report?
Ans. Sec 271B states that, if any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.
9. WAIVER OF PENALTY FOR NON FURNISHING
Q12. What are the circumstances under which penalty cannot be imposed for non furnishing of Tax Audit Report?
Ans. As per section 273B, no penalty is imposable under section 271B on the assessee for the above failure if he proves that there was reasonable cause for the said failure. The onus of proving reasonable cause is on the assessee. Some of the instances where Tribunals/Courts have accepted as "reasonable cause" are as follows:
(a) Resignation of the tax auditor and consequent delay;
(b) Bona fide interpretation of the term `turnover' based on expert advice;
(c) Death or physical inability of the partner in charge of the accounts;
(d) Labour problems such as strike, lock out for a long period, etc.;
(e) Loss of accounts because of fire, theft, etc. beyond the control of the assessee;
(f) Non-availability of accounts on account of seizure;
(g) Natural calamities, commotion, etc.
10. FORMAT OF MAINTAINANCE OF RECORDS OF TAX AUDIT
Q13. What is the format for maintaining records of Tax Audit Assignments?
Ans. Record of Tax Audit Assignments
1. Name of the Member accepting the assignment
2. Membership No.
3. Financial year of audit acceptance
4. Name and Registration No. of the firm/ firms of which the member is a proprietor or partner.
| Sl. No. | Name of the Auditee | AY of the Auditee | Date of Appointment | Date of acceptance | Name of the firm on whose behalf the member has accepted the assignment | Date of communication with the previous auditor (applicable) |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| | | | | | | |
11. COMMUNICATION WITH PREVIOUS AUDITOR
Q14. Is communication with the previous tax auditor necessary?
Ans. Yes
12. SHOULD CA ACEEPT TAX AUDIT IF UNDISPUTED FEES OF PREVIOUS AUDITOR NOT PAID
Q15. Should a CA accept Tax audit where undisputed fees of previous auditor have not been paid?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008, "a member of the Institute in practice shall not accept the appointment as auditor of an entity in case the undisputed audit fee of another CA for carrying out the statutory audit under the Companies Act, 1956 or various other statutes has not been paid"
13. TAR OF PVT LTD COMPANY
Q16. Whether Form 3CA or Form 3CB to use for Tax Audit Report purpose of a Pvt. Ltd. Co. having statutory Audit done by the same CA.
Ans. Form No 3CA-3CD
14. ADDRESS FOR NRI DIRECTOR IN ITR
Q17. While filling Director Details in ITR 6, only Indian Address is accepted in the form. However, one of the directors is an NRI and having foreign address. Should we fill in a local address of the Director and proceed or there is some other way out?
Ans. ITR-6 Required Residential Address. If Indian Address Available Then Give.
| Particulars of MD, Directors, Secretary and Principal officer(s) who have held the office during the previous year | Name | Designation | Residential Address | PAN |
| S.No. | | | | |
| | | | | |
15. PAN OF RELATIVE FOR UNSECURED LOAN
Q18. Whether it is mandatory to mention Pan No of Party Related with Unsecured Loan in online 3CD Form
Ans. EFiling software is not accepting it without PAN. Hope error will be rectified soon.
16. RETURN CAN BE UPLOADED BEFORE TAR
Q19. Is there any problem in uploading Income Tax Return before filing/approval of Tax Audit forms?
Ans. Date of furnishing TAR to department is to be mentioned in ITR. So TAR is to be filed first.
17. PROBLEM OF THREE TAX AUDITORS OF SAME ASSESSEE
Q20. An Individual Has Three Businesses Audited By Same/Different Tax Auditors. How To Submit Tax Audit Report?
Ans. In my view, you can follow the below mentioned steps.
a) Combine data of all B/S, P/l, tax audit report and submit as one
b) If tax audit conducted by different CAs, any CA can submit.
c) It is advised to attach physical copies of all Tax Audit Reports too, for disclosure of the fact that (i) different CAs have done Tax audit and (ii) that CA who is filling had relied on the work of all other Cas. (iii) There are three different Tax audit report whose data has been combined while submitting online TAR.
18. PROBLEM OF DIFFERENT METHODS OF VALUATION OF STOCK IN TWO FIRMS
Q21. An Individual Have 2 Firms. In One Firm, Method Of Valuation Of Closing Stock Is Cost Or Market Price Whichever Is Less. However, In Other Firm, Stock Is Valued At Market Price. How To Show It In Online Form 3cd?
Ans. It is better to mention the facts in separate sheet and attach with the online audit report.
19. APPROVAL OF TAR BY ASSESSEE IS MANDATORY
Q22. What If The Assessee Does Not Approve The Audit Report Submitted Before The Due Date
Ans. It may be presumed that no tar has been submitted by assessee
20. HOW TO SHOW ADDITIONAL DEPRECIATION
Q23. How To Show Additional Depreciation in the Online Form 3CD.
Ans. Add It with Normal Depreciation
21. DATE OF TAX AUDIT REPORT VS DATE OF FURNISHING TAX AUDIT REPORT
Q24. What is the difference between date of TAR and date of furnishing of TAR?
Ans. Date of TAR is the date of signing by the auditor and date of furnishing TAR is the date on which assessee approves the audit report uploaded by CA.
22. FORMAT FOR TAX AUDIT U/S 44AD
Q25. What is the format for Tax Audit u/s 44AD?
Ans. The Tax Audit under the provisions of section 44AD are to be conducted u/s 44AB. Hence, the format prescribed for Tax Audit u/s 44AD is 3CB & 3CD.
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IT : Section 10(23C) benefit can't be granted to maternity hospital as child birth is a natural process of God which in no way could be said to be any illness as contemplated under section 10(23C)(iiiae)
• In the instant case the assessee was running a maternity hospital in which services were provided to patients on nominal charges. In the cross objections it made a claim for deduction under section 10(23C)(iiiae). Thus, the moot question that arosed before the ITAT was as under:
• Whether assessee was eligible to claim deduction under section 10(23C)(iiiae) and whether services provided by assessee in relation to maternity hospital could be termed as services provided for illness or disease as envisaged under section 10(23C)(iiiae)?
The Tribunal held as under:
| (1) | The child birth is the natural process of God and it certainly is the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world; | |
| (2) | In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pain during labour, they choose to take better facilities in the hospitals in presence of Doctors for this purpose; | |
| (3) | Thus, the assessee's maternity hospital had been facilitating the deliveries, i.e., a natural process of God, which in no way could be said to be any illness to be treated in the hospital as envisaged under section 10(23C)(iiiae); | |
| (4) | The CIT(A) rightly disallowed the claim of assessee as the ingredients of section 10(23C)(iiiae) were not fulfilled. Thus, the cross objections of the assessee had no merit and were accordingly, to be dismissed. |
■■■
[2013] 37 taxmann.com 1 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Deputy Commissioner of Income-tax, Circle -1, Aligarh
v.
Nehru Prasutika Asptal Samiti
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 218 (AGRA) OF 2013
C.O. NO. 18 (AGRA) OF 2013
[ASSESSMENT YEAR 2009-10]
C.O. NO. 18 (AGRA) OF 2013
[ASSESSMENT YEAR 2009-10]
AUGUST 14, 2013
K.K. Mishra for the Appellant. Nikhil Kumar for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - The departmental appeal and the cross objection by the assessee are directed against the order of ld. CIT(A), Ghaziabad dated 15.03.2013 for the assessment year 2009-10.
2. We have heard the ld. representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
Departmental Appeal :
3. The Revenue challenged the order of the ld. CIT(A) in holding that investment of surplus fund in FDRs to earn interest income on idle funds is directly incidental activity. Hence, such interest income of Rs.11,32,800/- is eligible for exemption u/s. 11 of the IT Act. It is also stated that earning of interest on surplus funds cannot be treated as either educational or charitable activities.
4. The assessee filed return of income at nil income accompanied by auditors report. The assessee society is running a maternity hospital at Aligarh. All services pertaining to maternity, i.e., consultation, delivery and related operations etc. are provided to the patients at nominal charges. The assessee society is registered u/s. 12AA of the IT Act. The AO asked the assessee as to why interest income from FDR be not taxed. The AO found that as per submissions, the interest income as per FDR exceeds 15% of receipts allowed to be treated as charitable activity and balance was to be disallowed. The interest income was found to be taxable income. The assessee challenged the addition before the ld. CIT(A) and also claimed that its income is exempt u/s. 10(23C)(iiiae) of the Income-tax Act. It was submitted that the assessee is a charitable trust running a maternity hospital and large number of deliveries and related operations are conducted in the hospital. Therefore, the assessee is entitled for exemption u/s. 11 as well as u/s. 10(23C)(iiiae) of the IT Act and the receipts do not exceed Rs.1 crore. The investment made in the FDRs with the bank is permissible mode u/s. 11(5) of the IT Act. The AO disallowed 15% of the income. Therefore, remaining should have been considered as the income applied to the charitable objects. The assessee relied upon the decision of Delhi High Court in the case of DIT(Exemption) v. Dalmiya Shiksha Pratishthan, 305 ITR 327, in which it was held that merely because the assessee earns interest as a result of its investment would not mean that the assessee ceased to exist solely for educational purposes. The assessee also relied upon the decision of ITAT, Delhi Bench in the case of ITO v. Jesuit Conference of India, 47 SOT 29, in which it was held -
"Assessee trust would not lose exemption under s. 11 merely because of investing surplus money in mutual fund units and entering frequent transactions related to purchase/switchover from one such mutual fund scheme to another as the same is not a business activity; even otherwise, there was due compliance of the provisions of s. 11(4A) by the assessee."
The ld. CIT(A) found the claim of the assessee to be correct because the interest earned on surplus/corpus fund was directly incidental to the main activities of the trust and the assessee's claim is allowable by the above decision. The AO was therefore, directed to allow deduction u/s. 11 of the IT Act.
5. On consideration of the rival submissions, we are of the view that the departmental appeal has no merit and is liable to be dismissed. The decision in the case of Dalmiya Shiksha Pratishthan (supra) and ITO v. Jesuit Conference of India (supra) squarely apply to the facts and circumstances of the case. The assessee has invested its funds in FDRs on which the assessee earned interest, which is applied towards the objects of the assessee society. The funds invested in FDR have been shown in the balance sheet and is the property of the assessee-society. Merely because the assessee earns interest on its surplus/corpus funds would not lead to the fact that the assessee exists for profit purpose. The claim of the assessee has been correctly allowed by the ld. CIT(A). The departmental appeal has no merit and is accordingly dismissed.
Cross Objection:
6. The assessee in the cross objection made a claim of deduction u/s. 10(23C)(iiiae) of the IT Act. The ld. CIT(A) held that the assessee is a general hospital pertaining to maternity while the hospital/Institution as envisaged in section 10(23C)(iiiae) is in respect of mental disease or illness or rehabilitation existing solely for philanthropic purposes. The assessee has, however, not satisfied these conditions. Therefore, the claim of assessee was denied. Section 10(23C)(iiiae) of the IT Act reads as under :
"Any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed."
7. The AO noted in the assessment order that the assessee society is running maternity hospital and all services pertaining to maternity only. Maternity is a natural process and could not be termed as illness or disease. Giving birth and at that time hospital providing services for delivery could not be said to be providing any treatment for illness or mental defectiveness. Further in absence of any details or evidences available on record, we do not find it to be a fit case for interference and the ld. CIT(A) was therefore justified in holding that the ingredients of above section are not fulfilled in the case of assessee. The ld. counsel for the assessee pointed out from the paper book, the application of income and details of deliveries and operations conducted in this regard, which is not sufficient to grant relief under the above provisions to the assessee. It is worthwhile pointing out that the child birth is the natural process of God and it is certainly the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world. In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pains during labor, they choose to take better facilities in the hospitals in presence of Doctors for this purpose. Thus, it may be said that the assessee's maternity hospital in the instant case would have been facilitating the deliveries, i.e., a natural process of God. It, therefore, can in no way be said to be any illness to be treated in the assessee's hospital as envisaged u/s. 10(23C)(iiiae). Therefore, the ingredients of section 10(23C)(iiiae) being not fulfilled, the ld. CIT(A) has rightly disallowed the claim of assessee. As a result, the cross objection of the assessee has no merit and is accordingly dismissed.
8. In the result, the departmental appeal as well as the cross objection of the assessee are dismissed.
IT: Where in appellate proceedings, Tribunal took a view that order passed by Commissioner (appeals) being administrative in nature, assessee's appeal against said order was not maintainable, subsequently in rectification proceedings Tribunal could not remand matter back with a direction to Commissioner (Appeals) to pass a fresh order on assessee's application
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[2013] 36 taxmann.com 307 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Patel Maheshbhai Dahyabhai*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 8003 OF 2013
MAY 2, 2013
Section 254, read with section 119, of the Income-tax Act, 1961 - Appellate Tribunal - Powers of [Scope of] - Assessment year 2000-01 - For relevant assessment year, assessee filed his return after expiry of prescribed time period claiming refund of tax deducted at source - Since return was filed belatedly, assessee moved Commissioner for regularization of such return in terms of section 119(2)(b) - Commissioner rejected assessee's application - Tribunal recorded a finding that appeal which was filed against order under section 119(2)(b) was not maintainable since such order was an administrative order and, therefore, not appealable before Tribunal - Assessee sought rectification of said order - In rectification proceedings, Tribunal remanded matter back to Commissioner for consideration of assessee's application afresh - Commissioner filed instant petition challenging aforesaid direction of Tribunal - Whether since in original order, Tribunal took a view that order passed by Commissioner (Appeals) was not appealable, in exercise of rectification powers, it could not have given directions to Commissioner to pass fresh order on assessee's application - Held, yes - Whether, however, in view of peculiar facts of case that assessee, who was a labourer and retired more than 10 years back and did not have any taxable income, impugned order passed by Tribunal in rectification proceedings was to be upheld - Held, yes [Paras 7 and 8] [In favour of assessee]
Km Parikh for the Petitioner.
ORDER
Akil Kureshi, J.- This petition is filed by the Commissioner of Income-tax-II, Baroda, in somewhat peculiar circumstances.
2. Respondent, one Maheshbhai Dahyabhai Patel, had filed a return of income for the assessment year 2000-01. Such return was filed after the due date prescribed under the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). He, therefore, had moved the petitioner herein for regularisation of such return in terms of Section 119(2)(b) of the Act. His main plank was that he is a retired labourer and was totally ignorant about the Income-tax laws and other technical requirements. On the basis of such return, he had claimed a refund of Rs.33,949/-. In his application dated June 10, 2003 for above purpose, he stated that his normal salary was below the taxable limit and no Income-tax return, therefore, was filed. Under the Voluntary Retirement Scheme, however, he received a compensation of Rs.1,30,000/- during the financial year under consideration and the tax of Rs.33,949/- was deducted at source by the employer company. For the purpose of getting his refund, he had filed the return. The same was, however, beyond the prescribed limit. He, therefore, requested the petitioner to exercise powers under Section 119(2)(b) of the Act.
3. Such application was rejected by an order dated January 22, 2008. In such order, the Commissioner recorded that the return was due on July 31, 2000. The same was filed only on June 30, 2003 i.e. nearly three years from the last date for filing the return. He rejected the petitioner's ground of ignorance of law for delay in filing the return.
4. Such order of the petitioner was challenged by the respondent before the Income-tax Appellate Tribunal in a Tax Appeal. Such Tax Appeal came to be dismissed by an order dated April 04, 2012. The Tribunal recorded that the appeal which was filed against the order under Section 119(2)(b) of the Act was not maintainable since such order was an administrative order and, therefore, not appellable before the Tribunal.
5. The respondent filed a Miscellaneous Application for rectification of such order of the Tribunal. In such rectification proceedings, the Tribunal passed the impugned order dated October 19, 2012. During the course of hearing of such application, it was pointed out to the Tribunal that the petitioner had rejected the application under Section 119(2)(b) of the Act, on the premise that the return was filed late by about three years. June, 2003, however, was the date of filing of the application under Section 119(2)(b) of the Act. The return was delayed by only about one year and three months. On such premise, the Tribunal passed the following order.
"4. We have heard the rival submissions and perused the material on record. From the order dated 22-1-2009 passed u/s.119(2)(b), we find that the application of the assessee was rejected for the reason that the return was filed almost 3 years from the due date. The assessee's submission is that the delay was not of 3 years but of 1 year and 3 months. It was further the submission of the Ld. A.R. that the delay be directed to be condoned in view of the fact that the assessee is a retired labourer who is ignorant about the Income-tax laws. The Ld. D.R. has not brought any contrary facts to contradict the submissions of the Ld. A.R.
5. We find that the assessee is a retired labourer. Considering the totality of facts and in the interest of justice we are of the view that considering the peculiar circumstances of the case the Commissioner of Income-tax may consider the case afresh including the issue of condonation of delay and after giving proper opportunity of hearing to the assessee pass the necessary orders."
6. It is this order that the Revenue has challenged before us. The learned counsel for the petitioner vehemently contended that the Tribunal committed serious error in entertaining and allowing the rectification application of the respondent. He submitted that the order of the Commissioner was not appellable before the Tribunal. The Tribunal, therefore, had no jurisdiction to pass any order in favour of the respondent.
7. We have no hesitation in holding that the Tribunal's order on rectification application suffered from serious legal defect. If in the original order, the Tribunal was of the opinion that the order passed by the petitioner was not appellable, in exercise of rectification powers the Tribunal simply could not have given directions to the Commissioner to pass fresh order on the respondent's application. In essence, the Tribunal nullified the original order of the Commissioner and directed him to pass a fresh order after hearing the respondent. The Tribunal could have done this if the appeal was maintainable. When the Tribunal was of the opinion that the appeal was not maintainable, there was no question of giving such a direction, particularly in the order on application for rectification, the Tribunal did not come to any different conclusion. In other words, without holding that the appeal was maintainable, the order under challenge could not have been interfered with.
8. This petition, however, involves peculiar facts. The respondent-assessee, who was a labourer and retired more than 10 years back, did not have any taxable income under normal circumstances. He had perhaps in his entire life never filed any return of income. As a part of golden hand shake, he received a lump sum amount of Rs.1,30,000/-. The employer deducted a hefty tax at source of Rs.33,949/-. It appears that he was entitled to refund of such tax deducted at source. Under such circumstances, he filed his return for the assessment year 2000-01. Such return was delayed. Such return is ignored on the ground that no valid return is filed. His refund of Rs.33,949/- is withheld for the last about 10 years. It is for this purpose he prayed to the Commissioner that such delay be condoned. For the present, we are not commenting on the Commissioner's approach while deciding such application. All that the Tribunal has in the impugned order done is to require the Commissioner to pass a fresh order. This the Tribunal was persuaded to do because in the order passed by the Commissioner under Section 119(2)(b) of the Act, he was influenced substantially by the fact that according to him, the return was belated by three years. The respondent pointed out to the Tribunal that such delay was of about one year and three months. The Commissioner had mistakenly taken into account the date of filing of the application under Section 119(2)(b) of the Act.
9. Only to correct the Tribunal's order, we are simply not prepared to call the respondent before us. The man has retired in the year 2000 as a labourer. He is seeking refund of small sum of Rs.33,949/- which for him is very substantial. Only to correct an apparent error committed by the Tribunal, we would not drag him before High Court. Even if we had issued notice and called him before us, we would have been persuaded to replace the Tribunal's order by our order and same direction would have followed. Only to bring about some result in a correct manner, we would be wholly unjustified in asking a man of advanced age and of poor means before us. Response to a High Court notice comes at a considerable cost. In exercise of discretionary writ jurisdiction, we refuse to entertain this petition. This is the beauty of the writ jurisdiction and we would be failing in our duty, if we entertained the petition.
10. In the result, the petition is dismissed.
CX - Modvat - Bought out items exported as such along with machinery for setting up a plant in Vietnam - No Credit: Supreme Court
By TIOL News Service
NEW DELHI SEPT 05 2013: THE appellant-assessee entered into a contract with M/s Vina Sugars Vietnam for supply and installation of a sugar plant at Vietnam with a capacity of 1250 TCD (Tons crushed per day). For the said purpose the appellant had manufactured certain machines in its own factory which were to form part of the sugar plant and certain machinery including electric cables etc. which were necessary for the plant were purchased by the appellant from other dealers-manufacturers and the said machines- equipments - cables etc. which had been purchased from others along with appellant's manufactured items had been put in a container and the containers were transported to Vietnam so that the different parts of the machinery can be assembled and the plant can be set up at Vietnam.
In the course of its business the appellant had availed the MODVAT credit on certain goods under the provisions of Rule 57 Q of the Central Excise Rules 1944 declaring them as 'capital goods' which had been purchased by the appellant from other manufacturers-dealers in the country and had sent to Vietnam along with other parts of machinery manufactured by the appellant.
The respondent-department was of the view that the MODVAT credit availed by the appellant on goods parts of machinery & cables etc. purchased by it from local market and transported in a container along with other parts of machinery manufactured by it was not justified for the reason that the appellant had wrongly described such parts- equipments - cables etc. as 'capital goods' though the said goods were not covered under the definition of 'capital goods' under the provisions of Rule 57 Q of the Rules. The department was of the view that none of such purchased items had been used by the appellant in its factory premises in relation to manufacture of the final product manufactured by the appellant.
For the afore-stated reasons show cause notices dated 29.03.1996 and 03.03.1997 were issued to the appellant which had been dropped on considering the reply of the appellant. Upon review of the orders whereby the show cause notices had been dropped the Central Board of Excise and Customs directed the Commissioner to file an appeal before the CEGAT and therefore the Commissioner filed the appeals.
It was mainly submitted in the appeals on behalf of the department that the goods in respect of which the MODVAT credit was availed by the appellant were not capital goods as per the provisions of Rule 57Q of the Rules. It was also submitted that such goods were not used in the factory premises of the appellant in any manufacturing process and therefore the said goods were not capital goods as claimed by the appellant. It was also the case of the department that the said goods had been exported by the appellant along with parts of machinery manufactured by the appellant in a container and the said parts i.e. the parts purchased by the appellant had been exported in the same condition i.e. even without opening the packages or testing them. Thus the role of the appellant was merely like a trader who had purchased certain goods including parts of machinery cables etc. from dealers in our country and thereafter exported the same in the exact condition in special containers along with the machinery manufactured by it.
The department was also of the view that the parts of machinery which had been exported by the appellant could not have been said to be in Completely Knocked Down condition because the parts manufactured by the appellant and the parts purchased by the appellant from other dealers in the country had never been assembled in the appellant's factory and they were exported in the same condition as stated hereinabove and it was also pertinent to note that the parts so purchased were packed in such a way so as to keep the parts in good condition even after it is transported from India to Vietnam by sea.
The department was also of the view that the parts so purchased by the appellant could not have been treated even as 'inputs' as the said parts had not been used by the appellant in the process of manufacturing the machinery. The appeals were heard by the CEGAT and ultimately the CEGAT allowed the appeals by remanding the cases to the original authority for computing and confirming the amount of the MODVAT credit irregularly availed by the appellant and also for imposition of appropriate penalty after affording effective opportunity of hearing to the appellant in accordance with law.
Being aggrieved by the orders passed by the CEGAT the present appeals have been filed by the appellant before the Supreme Court.
The Supreme Court observed
It is pertinent to note that the most important object concerning grant of the MODVAT credit is to see that cascading effect of the duty imposed on the final product cleared at the time of sale is removed. If some duty is levied on the inputs raw materials etc. and if the final product is also dutiable then the duty levied on inputs i.e. raw materials is to be reduced from the duty ascertained on the final product. Thus there are two conditions for getting the MODVAT credit benefit:
i) On the raw materials i.e. on the inputs the manufacturer must have paid duty and such raw material must have been used in the process of manufacturing the final product in his factory or premises.ii) Excise duty must have been levied on the final product. If there is no duty levied on the final product there would not be any question of grant of any relief because in that case there would not be any cascading effect on the duty imposed.
Looking at the above stated clear legal position one may see here that no duty was paid by the appellant on the final product i.e. on the sugar plant which had been set up in Vietnam. For time being let us forget the fact whether the plant is movable or immovable the fact remains that no duty was paid on the said plant and therefore there would not be any question with regard to getting credit on the duty paid on the inputs especially when the appellant had not used the machinery manufactured by other manufacturers in its factory premises while manufacturing machinery which had been transported along with machinery manufactured by the appellant in a common container which had been sent to Vietnam by sea.
In our opinion the above stated reason is quite sufficient for denying any MODVAT credit to the appellant. While dealing with a similar issue this Court had observed in para no.15 of the judgment delivered in the case of Madras Cements Ltd. v. CCE - 2010-TIOL-40-SC-CX as under:
"In order to avail of MODVAT / CENVAT credit an assessee has to satisfy the assessing authorities that the capital goods in the form of components spares and accessories had been utilized during the process of manufacture of the finished product. Admittedly in this case the appellant was not able to identify the machinery for which the goods in question had been used. In the absence of such identification it was not possible for the assessing authorities to come to a decision as to whether MODVAT credit would be given in respect of the goods in question."Looking to the above legal position in our view the impugned orders passed by the Tribunal cannot be said to be incorrect.It is also not in dispute that the appellant had purchased some machinery from others and such machinery had not even been unpacked by it and in the exact condition it had been transported along with the machinery manufactured by it to Vietnam. Thus the appellant did not use the purchased machinery in its premises or in its factory and therefore necessary condition incorporated in the Rules for availing credit of the MODVAT had not been complied with. To avail the MODVAT credit the input on which excise duty is paid must be used in the manufacture of the final product in the factory of the assessee. The machinery purchased by the appellant had not even been tested or was not even unwrapped in the factory of the appellant. In case of such an admitted fact it cannot be said that the machinery so purchased from others was used by the appellant in the manufacture of the sugar plant.In the instant case the appellant had only acted as a trader or as an exporter in relation to the machinery purchased by it which had been exported and used for setting up a sugar plant in a foreign country. In any case it cannot be said to have manufactured that plant in its factory.Moreover it is also clear that the appellant-assessee did not pay any excise duty on the sugar plant set up by it in Vietnam and therefore there cannot be any question of availing any MODVAT credit."
The Supreme Court was of the view that the Tribunal had come to a correct conclusion and the conclusion so arrived at by the Tribunal does not require any interference. The party' s appeal is dismissed.
(See 2013-TIOL-42-SC-CX)
Tax Audit issues Raised by ICAI & Reply by IT Department
FREQUENTLY ASKED QUESTIONS(FAQs) ON e-FILING OF TAX
AUDIT REPORT
AUDIT REPORT
(Developed by Direct Taxes Committee of ICAI in consultation with the Officials of Directorate
of Income-Tax (Systems)
of Income-Tax (Systems)
Note: This document deals with those FAQ's which are not covered in the e-filing portal. The members may visit thewww.incometaxindiaefiling.gov.infor other FAQ's.
[Go to home page of www. incometaxindiaefiling.gov. in, click on 'Help' menu at right topmost corner of the page, then click on the link as may be considered necessary]
1. What is the complete procedure to upload tax audit reports by Tax Professionals?
The procedure of e- filing is explained at the following path of e-filing website:
https://incometaxindiaefiling.gov.in/e-Filing/Portal/StaticPDF/Registration Services.pdf?0.223 1070064008236
However, the procedure in brief is mentioned below:
| Step- I | Registration on e-filingportal | Action by Chartered Accountant |
a) Access www.incometaxindiaefiling.gov.in
b) Click on 'Register Yourself' tab and select the user type under Tax Professional as 'CharteredAccountant'
c) Enter Basic details:
Step- II | Add Chartered Accountant | Action by Assessee |
a) Assessee is required to login into his/her account by entering user id and password atwww.incometaxindiaefiling.gov.in
b) Go to 'My Account' tab and select 'Add CA'
c) Enter MRN of the CA. After entering correct 6 digits MRN of CA, the name of CA will automatically get prefilled.
d) Select the Form no. for which CA is supposed to be added.
e) Select Assessment Year
f) Enter the image of the captcha code
g) Click 'Submit'
After successful submission of above, a message will be displayed notifying the addition of CA in assessee's profile.
Step- III | Submit Tax Audit report | Action by Chartered Accountant |
After successful uploading of tax audit report, the said form will go to assessee for approval.
Step- IV | Approval or Rejection of uploaded tax audit report | Action by Assessee |
a) Login the account and navigate to 'Work list' tab (Assessee will be able to view list of forms submitted by Chartered Accountant along with attachment)
b) Click on 'View Form'
c) Assessee can verify the form and approve/reject the form (other than ITR).
d) The acceptance of the form (other than ITR) by the assessee is to be made under his/her Digital Signature.
e) If assessee is rejecting the form, reason for such rejection has to be provided.
An email will be sent to the registered e-mail id after successful submission of the form along with the acknowledgement number.
2. Whether Schedules and Notes to Accounts are also required to be uploaded with Balance Sheet and P&L?
Form No. 3CA requires the tax auditor to annex a copy of the Statutory Audit Report along with the copy of audited Profit and Loss Account/ Income & Expenditure Account, audited Balance Sheetand documents declared by the said Act to be a part of / or annexed to the Balance Sheet and Profit and loss Account/ Income & Expenditure Account. Accordingly, the same are required to be uploaded.
With regard to Form No.3CB, the tax auditor is required to annex the audited Balance Sheet, Profit and loss account /Income & Expenditure Account along with notes to accounts and schedules, if any, forming part of Balance Sheet, Profit and loss account /Income & Expenditure Account.
3. Whether it is mandatory to upload a scanned copy of signed Balance Sheet, P&L andother documents?
Balance Sheet, Profit and Loss Account in Word, Excel Format, etc signed as "sd/-" can be converted in to '.pdf' file and uploaded on the portal. However, the auditor should maintain the physically signed Audited Report in his records and ensure from that there is no difference between physical report and PDF file uploaded.
4. Whether Name / Date of Birth (DOB) of the Chartered Accountant given in PANdatabase (as per ITD e-filing website) is to be matched with the ICAI database for successful registration in the e-filing portal?E-filing portal verifies the Name of Member and Date of Birth entered in Registration Form from ICAI Database and also PAN Database. In case there is difference / mismatch of details between the two Databases the portal will not allow registration. In case any member is facing such difficulty, please refer to procedure given in the following linkhttp://220.227.161 .86/30652dtc20622.pdf
5. Whether audit conducted under section 44AD, 44BB, 44BBB & 44AE is required to befiled electronically?
Sections 44AD, 44BB, 44BBB & 44AE provide that in specified cases the assessee is required to get his accounts audited and furnish the report of such audit as required under section 44AB. Therefore, e-filing is applicable to such audits also.
6. Where the Firm Registration No. (FRN) should be mentioned in the e-forms?The presentE-filing portal does not provide field to mention FRN, however, the department is in the process of enabling this facility. Till the utility is configured to allow entering of FRN, members need not mention their FRN.
7. Where should the comments/observations in respect of a particular clause of FormNo.3CD is to be mentioned in the e-form?Comments / observations, if any relating to the clauses may be given in Form 3CA/3CB subject to space provided therein. Alternatively, they can be uploaded as PDF file in the field 'Upload other report' of the portal.
8. In case tax audit is conducted by joint auditors, what is the procedure to upload tax audit report electronically?The e-filing portal allows the report to be uploaded by a single auditor. Therefore, the joint auditors may mutually agree and decide the auditor who shall upload the report. However, all the joint auditors should sign the hard copies.As per the ICAI's "Guidance Note on Tax Audit u/s 44AB of the Income-tax Act, 1961", it is possible for the assessee to appoint two or more chartered accountants as joint auditors for carrying out the tax audit, in which case, theaudit report will have to signed by all the chartered accountants. As per Standards on Auditing 299 (Responsibility of Joint Auditors) issued by ICAI, normally, the joint auditors are able to arrive at an agreed report. In such case, the physical copy should be signed by all the auditors. Thereafter, any one of them may upload the report.However, where the joint auditors are in disagreement with regard to any matters to be covered by the report, each one of them should express his own opinion through a separate report. A joint auditor is not bound by the views of the majority of the joint auditors regarding matters to be covered in the report and is required to express his opinion in a separate report in case of a disagreement. Such separate reports are also to be uploaded on the portal.
9. What is the procedure to furnish revised audit report electronically?In case of revision, theaudit report should be given in the manner suggested by the Institute in SA-560 (Revised) "Subsequent Events". It may be pointed out that report under section 44AB should not normally berevised. However, sometimes a member may be required to revise his tax audit report on grounds such as:
(i) revision of accounts of a company after its adoption in annual general meeting.
(ii) change of law e.g., retrospective amendment.
(iii) change in interpretation, e.g. CBDT's circular, judgments, etc.
(iv) Any other reason like system/software error requiring change in report already
uploaded.
uploaded.
In case, where a member is called upon to report on the revised accounts, then he must mention in the revised report that the said report is a revised report and a reference should be made to the earlier report also. In the revised report, reasons for revising the report should also be mentioned.
The e-filing portal allows uploading such Revised Audit Report by the CA for the same PAN and Assessment Year.
10. Is there any upper limit on the no. of audit reports which can be uploaded by a Chartered Accountant on e-filing portal?
As per ICAI Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008, a member of the Institute in practice shall not accept, in a financial year, more than the 45 tax audit assignmentsunder Section 44AB of the Income-tax Act, 1961. However, audits conducted under sections 44AD and 44AE shall not be included in this limit.
Since, the Income-tax Act,1961 does not provide any limit on number of tax audits assignments which can be undertaken by a Chartered Accountant the e-filing portal does not provide any restriction. However, members are required to comply with the prescribed ceiling limits.
11. If there are 10 partners in a firm of Chartered Accountants, then how many tax audits reports can each partner sign in a financial year?As per Chapter VI of Council General Guidelines, 2008 (Tax Audit Assignments under Section 44AB of the Income Tax Act, 1961), a member of the Institute in practice shall not accept, in a financial year, more than the specified number of tax audit assignments as prescribed under Section 44AB of the Income Tax Act, 1961. The specified number of tax audit assignments under Section 44AB of the Income Tax Act, 1961 is 45.
It is further provided in Chapter VI of Council General Guidelines, 2008 that in case of firm of Chartered Accountants in practice, specified number of tax audit assignments means 45 tax audit assignments per partner of the firm, in a financial year.
Therefore, if there are 10 partners in a firm of Chartered Accountants in practice, then all the partners of the firm can collectively sign 450 tax audit reports. This maximum limit of 450 tax audit assignments may be distributed between the partners in any manner whatsoever. For instance, 1 partner can individually sign 450 tax audit reports in case remaining 9 partners are not signing any tax audit report.
It is needless to say that the tax audit assignment should be in accordance with the Standard on Quality Control (SQC) 1: Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements
12. What is recommended system requirements for facilitating e-filing?To increase the computer processing speed all the previous versions of java be removed from the computer. To use the e-forms utility install Java Runtime Environment Version 7 update 13 (jre 1.7 is also known as jre version 7) or https://incometaxindiaefiling.gov.in
13. If tax audit report is issued and the ITR is filed prior to issuance of the Notification No. 34/2013, dated 01-05-2013 which mandates e-filing of audit reports. In such cases whether e-filing of audit reports is required?CBDT Notification No. 3 4/2013 dated 1 -05-2013provides that the rules prescribed therein shall be deemed to have come into force with effect from the 1st day of April, 2013. Accordingly, even if ITR has been filed prior to issuance of said Notification, Tax Audit report is required to be e-filed separately.
14. In case of e-filing of audit reports what is the date of audit report? Date on which the report is physically signed by the Auditor shall be the date of audit report.15. Is it possible to e-file the ITR first and then e-file the audit report?
e-filing of ITR and Tax Audit report are independent actions. However, it is advisable to first upload tax audit report and then file IT return.
16. Even after filling complete details in the first page of ITR-7, one is not allowed to proceed to second page. What should be done in such a case?
The trust should first fill the status and then PAN.
Some More General issues Raised by ICAI during Presentation on e-Filing of Audit Reports – Webcast to ICAI Members 29th August , 2013 and there resolution as suggested by Income Tax Department :-
Issue - Date of Receipt of Audit Report (Whether Date of filing by CA or date of Acceptance by Assessee)
Resolution - While Audit Report will become valid on acceptance by Assessee, Date of upload would be treated as date of filing
Issue - Mismatch between PAN date of Birth and Date of Birth in ICAI database
Resolution – PAN Correction is the correct resolution
Issue - DSC May be dispensed with
Resolution - Not acceptable.
Issue - As per ICAI's Council Guidelines the Firm Registration Number (FRN) and the name of the firm with which he/she is associated, has to be mentioned in all audits. However, there is no such requirement in Form No. 3CA/3CB & 3CD
Resolution - The field for Capturing FRN will be added in the verification for the CA. In Reports filed so far where the FRN was not captured procedure shall be intimated
Issue - Guidance Note on tax audit u/s 44AB of the Income-tax Act, 1961" requires the tax auditor to mention his observations/reservations, if any, in respect of various clauses of Form No.3CD in Form No.3CD itself for the ease of the AOs
Resolution - ICAI had suggested that separate column may be created with the clause itself; this would require a change in the form by TPL. More space is being created. A sub Committee of ICAI and ITD examining the additional space in Para 3 of Form No. 3CA/ Para 3(a) of Form No.3CB,
Issue - Word limit has been fixed for reporting in the e-filing schema like under each clause of Form no. 3CD limit is set at 100, for observations and comments the limit is fixed at 1000/2000, for ratios and computation thereof the limit is 30
Resolution - More space is being created. A sub Committee of ICAI and ITD examining the additional space requirements
Issue - Capturing Signatures of More than one CA in the instance of joint Audits.
Resolution - ICAI pointed out that only in the case of disagreement would two separate reports be required to be filed. Thus more than audit report under DSC of different CAs are enabled
Issue - Revised Audit Reports to be enabled
Resolution - Revised Reports can be filed
Issue - ICAI wanted validations to be built in into various fields such as limits under Chapter VI A or where certain deductions can be claimed by Assessees of certain status.
Resolution - While the general feeling is that the CA's should themselves exercise caution, certain validations are being developed based on the recommendations of the sub-committee
Issue - In the Java format of e-filing tax audit reports, it is observed that the user is not able to take print out of the filled in forms before or after uploading the same in the e-filing portal
Resolution - While print option available post upload/approval of Forms. The XML can be imported into the Forms to check the correctness of the particulars keyed in before upload. The suggestion is being examined
Issue - The facility of import of data form multiple formats (Excel etc) should be created to prevent tedious data entry/ dta entry errors especially with regards to depreciation schedule and other large schedules
Resolution - For ITD to Provide import facility for multiple formats may not be viable. ICAI/ ERIs can consider working on such Utilities. However a standard CSV format for Depreciation schedule shall be made available to permit import
Issue - CA s could not view clients
Resolution - Have been resolved
Issue - There were issues with regards to upload of 20MB/ 50 MB
Resolution - Have been resolved
Issue - Erasure of certain clauses particularly, the data entered in clauses 7(b), 8(b), 9(a) & 10 after saving
Resolution - Have been resolved
Issue - Special characters disabling
Resolution - Have been resolved
Issue - Companies prior to 1913
Resolution - Have been resolved
Issue - In case of partnership firm, the total of profit sharing ratio of all partners is equal to 100%. The user should not be allowed to fill in further information if the total of profit sharing ratio is less than 100%
Resolution - Consciously a decision has been taken not to put any validation in the Audit Report as it is not being processed.
Issue - 17- Separate disclosure for different nature of disallowance is not possible. Under this clause only single amount of disallowance can be specified in sub-clauses 17(a)/ (b)/ (c)/ (d)/ (e)/ (f).
Resolution - While a change in the form is being suggested to TPL. Increasing space for remarks at the end of the form is being worked out subject to overall limit of 50MB
Issue - PAN to not be a mandatory field in the 206A cases
Resolution - Have been resolved
Issue - No order number in case of brought forward loss reference order
Resolution - Have been resolved
Issue - Difficulty in uploading scanned P&L accounts and balance sheets
Resolution - PDF documents/ Text or Excel documents can be uploaded. Working on convergence with MCA
IT : Where book profits as declared were in conformity and as per provisions of Parts II and III of Schedule VI of Companies Act, 1956, adjustment of prior period expenses in book profits under section 115JB would be a debatable issue; AO was not justified in invoking section 154
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[2012] 23 taxmann.com 434 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
R.T.C.L. Ltd.*
SANJIV KHANNA AND R.V. EASWAR, JJ.
IT APPEAL NO. 612 OF 2009 †
MARCH 28, 2012
Section 115JB, read with section 154, of the Income-tax Act, 1961 - Minimum alternate-tax - Assessment year 2002-03 - During relevant year, assessee changed method of computing depreciation from straight line method to written down value method - Difference due to said change was shown in profit and loss account - Assessing Officer passed assessment order under section 143(3) - Subsequently, notice under section 154 was issued and a rectification order was passed recording that while computing book profit under section 115JB prior period expenses could not be adjusted - On further appeal, Tribunal held that action of Assessing Officer under section 154 was not warranted - It held that net profit as shown in accounts of assessee after writing off arrears of depreciation of earlier years would alone represent book profits of assessee and it was not for Assessing Officer to substitute his own figures in its place and make any book adjustment - In instant appeal assessee contended that book profits as declared were in conformity and as per provisions of Parts II and III of Schedule VI of Companies Act, 1956 and Assessing Officer and Commissioner (Appeals) had not adversely commented or stated that entry was contrary to Parts II and III of said Schedule - Whether issues and contentions being debatable and in realm of uncertainty, Assessing Officer was not right in invoking section 154 - Held, yes [In favour of assessee]
FACTS
The assessee was following the straight-line method of depreciation under the Companies Act, 1956, prior to the assessment year 2002-03. However, in the year in question, it changed the method to written down value method and difference due to said change was shown in the profit and loss account under the head 'Expenditure - Depreciation'. The Assessing officer assessed the total income of the assessee as 'Nil' under section 143(3). Subsequently, notice under section 154 was issued and a rectification order was passed recording that while computing book profit under section 115JB the assessee had claimed prior period adjustment which was inadmissible in nature. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On further appeal, the Tribunal held that the action of the Assessing Officer under section 154 was not warranted. It held that the net profit as shown in the accounts of the assessee after writing off arrears of depreciation of the earlier years would alone represent the book profits of the assessee and it was not for the Assessing Officer to substitute his own figures in its place.
On revenue's appeal:
HELD
There are two aspects of the matter. First aspect relates to whether or not adjustment is permissible and should be taken into consideration while computing book profits under section 115JB. [Para 5]
The jurisdiction under section 154 is confined and restricted to rectification of errors and mistakes which are apparent from the record. The Assessing Officer cannot go into a debatable issue on which two or more views are possible and pass an order on merits. The orders passed by the Assessing Officer as well as Commissioner (Appeals) have not indicated or specifically stated how and why the issue was clear and that no debate or two views were possible. The contention of the assessee, which has been referred to by the Tribunal in the impugned order, shows that there was considerable controversy on the said aspect. [Para 6]
It was the contention of the assessee that the book profits as declared were in conformity and as per provisions of parts II and III of the Schedule VI of the Companies Act, 1956 it is stated by the assessee that the Assessing Officer and the Commissioner (Appeals) have not adversely commented or stated that the entry was contrary to parts-II and III of the said Schedule. The first proviso to section 115JB(2) has not been specifically referred to and applied by the Assessing Officer and the Commissioner (Appeals). They have not stated as to why and how the book profits were not computed in consonance with provisions of parts II and III of the Schedule VI of the Companies Act, 1956. The issues and contentions being debatable and in the realm of uncertainty, the Assessing Officer was not right in invoking section 154. The Tribunal was right in observing that the action of the Assessing Officer under section 154 was not warranted. [Para 7]
Ms. Rashmi Chopra for the Appellant. Dr. Rakesh Gupta and Ms. Poonam Ahuja for the Respondent.
ORDER
Sanjiv Khanna, J. - This appeal filed by the Revenue under Section 260 A of the Income Tax Act, 1961 ('Act', for short) impugns order dated 29.8.2008 passed by the Income Tax Appellate Tribunal ('Tribunal' for short) in the case of R.T.C.L. Ltd. and relates to assessment year 2002-03. Having heard the counsel for the parties, we feel no substantial question of law arises in the present appeal.
2. The Assessing Officer vide order dated 15.3.2005 had assessed total income of the assessee at Nil under Section 143(3) of the Act. Subsequently, notice under section 154 of the Act was issued and a rectification order dated 21.07.2006 under the said Section was passed recording:-
"After going through the records it was found that while computing book profit the assessee had claimed prior period adjustment for Rs. 3,74,59,471/- which was inadmissible nature.
In compliance to this office notice u/s 154 of the Act dated 22.11.2005, the assessee has filed its reply dated 22.02.2006, which is placed on record. The assessee has submitted that calculation of book profits were made strictly an accordance with and in compliance of the provision contained in Section 115JB of the Act. The reply of the assessee has been considered. It is found that prior period expenses cannot be adjusted against book profits of calculating tax u/s 115JB of the Act with these remarks the income is computed as under:
Income as per P & L A/c | 2,38,63,629/- | |
(Prior period adjustment for Rs.3,74,59,471/-Not allowed as discussed above) | | |
Revised income | 2,38,63,629/-" |
3. In the first appeal, the assessee was unsuccessful and the order under Section 154 was confirmed by the CIT(Appeals), who held as follows:
"4. I have considered facts of the case and arguments taken by Sh. Taneja quite carefully. It is seen that for the purpose of working out the profits u/s 115 JB of the I.T. Act, the profits as computed in the profit and loss account for the relevant accounting year had only to be considered. Certainly, it is undisputed fact that further debit of Rs. 3,74,54,471/- was not the expenditure for the current year but undisputedly it was prior period adjustments on account of change in the depreciation method. Profits for the relevant period as shown in the P & L account is relevant and while working out such profits and adjustments for prior period cannot be allowed as per relevant provision of I.T. Act. Since while passing the 143(3) order, the AO has committed apparent mistake of the law. Therefore, in my considered view the AO was fully justified in rectifying the said mistake through aforesaid order passed u/s 154 of the I.T. Act. Various decisions which are relied upon by Sh. Taneja are having different facts and, therefore, under the facts of present case these cannot be applicable. With this discussion, the rectification order passed by AO is hereby confirmed by rejecting relevant grounds of appeal."
4. It is noticeable from the aforesaid findings of the Assessing officer and the CIT(Appeals) that the respondent-assessee was following the straight line method of depreciation under the Companies Act, 1956, prior to the assessment year 2002-03. However, in the year in question, it changed the method to written down value method and the difference due to the said change of Rs. 3,74,59,471/- was shown in the profit and loss account under the head 'Expenditure - Depreciation'. Due to this change, the said/current year's book profits got reduced to Rs. 13,14,552/-.
5. There are two aspects of the matter. First aspect relates to whether or not this adjustment, is permissible and should be taken into consideration while computing book profits under Section 115JB. We may notice clause (iia) to Explanation 1 to Section 115JB(2) is inserted by the Finance Act, 2006 w.e.f. 1.4.2007 and reads:-
"115JB-
** | ** | ** |
Explanation [1].- For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by-"
** | ** | ** |
(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or"
6. We are not inclined to go into the said question and issue in the present case as we feel that the Assessing Officer could not have examined and gone into the said aspect while exercising limited jurisdiction under Section 154 of the Act. The jurisdiction under the said Section is confined and restricted to rectification of errors and mistakes which are apparent from the record. The Assessing Officer cannot go into a debatable issue on which two or more views are possible and pass an order on merits. We have quoted the orders passed by the Assessing Officer as well as CIT(Appeals). They have not indicated or specifically stated how and why the issue was clear and that no debate or two views were possible. The contention of the assessee, which has been referred to by the Tribunal in the impugned order, shows that there was considerable controversy on the said aspect and this is clear when we read the following paragraph from the order of the Tribunal:-
"As to whether the arrears of depreciation can be provided or not, the matter is settled by various decisions of the Tribunal as also by the decision of the Bombay High Court in the case of Kinetic Motor Co. Limited 262 ITR 330 wherein also there was a change in the method of providing depreciation and the profits of the assessee were lowered by Rs. 6,32,65,430/-. The High Court held that under the Companies Act, both the straight-line method and written down value method are recognized and, therefore, once the amount of depreciation actually debited in the profit and loss account was certified by the auditors, it was not permissible for the Assessing Officer to make any book adjustments in view of the decision of the Supreme Court in the case of Apollo Tyres Limited v. CIT 255 ITR 273 . Besides above, we find that there are decisions of the Tribunal holding the similar view, namely, Calcutta Bench of the Tribunal in the case of JCT Limited v. DCIT 253 ITR 61, Cochin Bench of the Tribunal in the case of Apollo Tyres Limitedv. DCIT 43 ITD 464 , Bombay Bench of the Tribunal in the case of Modern Woollens, Ltd. v.DCIT 47 ITD 154 and Amritsar bench of the Tribunal in ITA No. 353/Ars./91 order dated 14.4.1994. In all these cases, it was held that the net profit as shown in the accounts of the assessee after writing off arrears of depreciation of the earlier years would alone represent the book profits of the assessee and it was not for the Assessing Officer to substantiate his own figures in its place. The learned DR however buttressed the view from a different angle and submitted that the arrears of depreciation had been claimed by the assessee below the line of the profit and loss account and, therefore, it cannot form part of the profit & loss account and book profit to be provided only above the profit line. This issue is also not res Integra and the Tribunal in the case of Gulf Oil Corporation Limited v. ACIT 111 ITR 124 dealt with the issue by observing as under:
"6. We have duly considered the rival submissions and material on record. Sub-section (2) of Section 115JB provides that every assesses company shall prepare its profit and loss account in accordance with the provisions of Part-II and Part-III of Schedule VI to the Companies Act, 1956. The said Schedule-VI does not speak of the Appropriation Account at all. It is only as a matter if presentation that most of the companies segregate to reflect as to what has been appropriated where out of the profits earned by them. Otherwise, sub-clauses (a) and (b) of clause (viii) of Note-II in para 3 of Part-II of Schedule- VI specifically provide that the aggregate amounts set aside or proposed to be set aside to reserves should be distinctly shown in the Profit and Loss account. Similarly, sub-clause (b) and sub-clauses (a) and (b) of clauses (xii) and (xiii) respectively in Note-II of Part-II of Schedule - VI provide that profits or losses in respect of transactions not usually undertaken or undertaken in exceptional circumstances or which are of non-recurring nature should be shown in the Profit and Loss Account. The aggregate amount of dividends paid and proposed are also to be shown in the Profit and Loss Account. The point we are trying to drive home is that all the items which are generally classified in the Appropriation Account are in fact to the included in the Profit and Loss Account prepared as Parts-II and III of Schedule-VI. Therefore, we are in agreement with the argument of the learned counsel that the starting point for computation of book profits for the purposes of Section 115JB should be Rs. 660.81 lakhs which is the final balance in the Profit and Loss account carried to balance Sheet. It may also be noted from the above discussion that even extraordinary items have to be debited to the Profit and Loss Account. Having adopted the figure of Rs. 660.81 lakhs as the starting point, the same has to be increased by the items specified in clauses (a) to (f) and has to be reduced by the items specified in clauses (i) to (vii) given in the Explanation. No other adjustment is permitted by law and also as laid down by the Supreme Court in the case of Apollo Tyres Ltd. (supra). None of the clauses given in the Explanation provide for the increase or decrease of the book profits by extraordinary items. The reference of AS-5 by the learned Department Representative does not in any manner advance the case of the revenue. It merely says that prior period and extraordinary items should be separately disclosed along with their nature so that their impact on the operating results can be perceived. It does not say that they are not part of the Profit and Loss Account. Similarly, the Guidance Note issued by the ICAI also does not help the revenue as it merely says that sometimes, Appropriation Account is included as a separate section of the Profit and Loss Account. But, as we have seen earlier, Parts-II and III of Schedule-VI to the Companies Act do not speak of Appropriation Account at all. In the light of this discussion, we are convinced that it was in accordance with law for the assessee to have taken Rs. 978.55 lakhs as the base figure to compute the book profits for the purposes of Section 115JB."
7. We may also notice that it is the contention of the assessee that the book profits as declared were in confirmity and as per provisions of parts II and III of the Schedule VI of the Companies Act, 1956. It is stated by the assessee that the Assessing Officer and the CIT(Appeals) have not adversely commented or stated that the entry was contrary to parts-II and III of the said Schedule. The first proviso to Section 115JB(2) has not been specifically referred to and applied by the Assessing Officer and the CIT(Appeals). They have not stated as to why and how the book profits were not computed in consonance with provisions of parts II and III of the Schedule VI of the Companies Act, 1956. The issues and contentions being debatable and in the realm of uncertainty, we do not think the Assessing Officer was right in invoking under Section 154 of the Act. The Tribunal was right in observing that the action of the Assessing Officer under Section 154 was not warranted. With the aforesaid observations, we decline to entertain the present appeal. We clarify that we have not examined the question on merits and it is left open. No costs.
IT : Where assessee produced complete accounts, but without supporting vouchers, Assessing Officer should have rejected them and framed best judgment assessment, instead of making arbitrary disallowances
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[2013] 36 taxmann.com 421 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'A'
Kalyan Mukherjee
v.
Income-tax Officer, Ward-2(2), Asansol*
K. K. GUPTA, ACCOUNTANT MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER
IT APPEAL NO. 1615 (KOL.) OF 2009
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
JUNE 18, 2013
Section 145, read with section 144, of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts [No supporting vouchers] - Assessment year 2005-06 - Although assessee had maintained regular books of account, Assessing Officer disallowed 10 per cent expenses and made addition for unexplained investment and undisclosed drawings, for lack of supporting vouchers and documents - Whether, where assessee produced complete books of account but without supporting vouchers, arbitrary disallowance and addition could not be made, and Assessing Officer was required to reject books of account under section 145 and frame best judgment assessment under section 144, based on an honest and fair estimate - Held, yes [Para 8] [Partly in favour of assessee]
FACTS
| ■ | The assessee was an electrical contractor carrying out Government as well as private contracts. During assessment proceedings, the Assessing Officer disallowed 10 per cent of purchases, wages and other expenses for lack of vouchers and supporting documents. He also made addition for unexplained investment in recurring deposits and for undisclosed drawings. The assessee contended that all regular books of account had been maintained and that the investments and drawings had been made from contractual receipts. However, the disallowance and additions were confirmed by the Commissioner (Appeals). | |
| ■ | On assessee's appeal: |
HELD
| ■ | The assessee is a contractor carrying out Government as well as private contracts. The assessee produced complete books of account before the Assessing Officer but without supporting vouchers. Even the unexplained credits/transfer entries/deposits in the bank account were inter deposits of business and these were nothing sort of cash credits or unexplained credits. Revenue could not explain how the entire addition was made and what was the basis for same. It only argued that since the books of account were not supported by vouchers, the Assessing Officer and Commissioner (Appeals) had disallowed the expenses, charges and unproved credits/transfers/deposits in the hands of the assessee. It is not the case of the revenue that these deposits /unproved credits/transfer were not related to business transaction, rather the assessee filed a complete chart stating that the entire deposits/transfers/credits were proved and these were related to business transactions only and out of contract receipts. In such circumstances, the assessment order or order of Commissioner (Appeals) cannot be upheld. [Para 6] | |
| ■ | In the absence of supporting material of the books of account i.e., bills and vouchers, the assessing authority should have rejected books of account and should have framed assessment in terms of sections 144 and 145. For that the Assessing Officer must act honestly and not vindictively or capriciously because he must exercise judgment in the matter. However, from records it is evident otherwise. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In making a best judgment assessment, the Assessing Officer does not possess absolutely arbitrary authority to assess at any figure he likes, and although he is not bound by strict judicial principles, he should be guided by rules of justice, equity and good conscience. At the same time, there is nothing in the language of section 144 or 145 for holding that an assessment made by an officer under these sections, without conducting a local enquiry and without recording the details and results of that enquiry, cannot have been made to the best of his judgment within the meaning of that section. In other words, the Assessing Officer, while making a best judgment assessment, should make an intelligent, well grounded estimate. Such estimate must be based on adequate and relevant materials. If more than one method or approach is possible, any alternative method can be restored to estimate the quantum in a best judgment assessment. The quantum to be made in a best judgment assessment should be rational and fair in all circumstances of the case. [Para 7] | |
| ■ | The Tribunal confirmed the application of net profit at 5.35 per cent in earlier year i.e. in Assessment Year 2003-04. Keeping in view net profit of earlier years, a reasonable net profit i.e. at the rate of 8 per cent would meet the end of justice. Accordingly, the Assessing Officer is directed to recompute the assessee's income after deleting all the additions as made by him and enhanced by Commissioner (Appeals), but restrict the addition only at 8 per cent of gross contract receipts. It is also mentioned that this net profit rate at 8 per cent cannot be taken as reference to any other years, if facts are not identical or assessee claims that assessment be framed on the basis of accounts, if accounts are found correct. [Para 8] |
Somnath Ghosh and Sarnath Ghosh for the Appellant. Javed Khan and L.K.S. Dehiya for the Respondent.
ORDER
Mahavir Singh, Judicial Member - This appeal by assessee is arising out of order of CIT(A), Asansol in Appeal No. 262/CIT(A)/Asl/Ward-2(2)/Asl/2007-08 dated 30-06-2009. Assessment was framed by ITO, Ward-2(2), Asansol u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2005-06 vide his order dated 31.12.2007.
2. The assessee in this appeal has raised modified grounds in terms of Rule 11 of Income-tax Appellate Tribunal Rules, 1963 and the relevant grounds raised read as under:
| "1. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol acted unlawfully in upholding the purported disallowance made by the Ld. Income-tax Officer, Ward 2(2), Asansol in the sum of Rs. 7,60,963/- being 10% of the expenses claimed under head Purchase and also erred in resorting to enhancement by way of disallowing a further sum of Rs. 67,02,331/- thereby restricting the expenditure to the sum of Rs 1,45,333/- that behalf are absolutely arbitrary, unwarranted and perverse. | |
| 2. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol acted illegally in upholding the impugned disallowance made by the Ld. Income-tax Officer, Ward 2(2), Asansol in the sum of Rs. 2,56,145/- being 10% of the expenses claimed under head Wages and thereafter erred in resorting to enhancement by way of disallowing a further sum of Rs. 23,11,313/- which resulted in excess of the entire claim of expenditure made under that head and the purported action resorted to on that behalf is wholly capricious, unreasonable and perverse. | |
| 3. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol erred in upholding the Impugned disallowance made by the Ld. Income-tax Officer, Ward 2(2), Asansol aggregating to an amount of Rs. 1,22,976/- being 20% of the expenses claimed under heads Travelling & Conveyance Other Indirect expenses, Entertainment and Telephone & Mobile and further erred in resorting to enhancement by way of disallowing the entire claim of expenses made under those heads along with the expenditure claimed under the heads Salary & Bonus and interest on Loan and the purported action resorted to on that behalf is totally biased, flawed and perverse. | |
| 4. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol misread evidences, considered improper issues, failed to consider proper position in law, misplaced onus of proof in upholding the impugned addition in the sum of Rs. 1,04,529/- made by the Ld. Income-tax Officer, Ward 2(2), Asansol on account of unexplained investment by invoking the provisions of s. 69 of the Income-tax Act, 1961 and the specious finding on that behalf is absolutely wrong, erroneous, Flawed and contrary to the statutory prescription. | |
| 5. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol gravely erred in upholding the impugned addition of Rs. 4,08,960/- made by the Ld. Income-tax Officer, Ward 2(2), Asansol on account of alleged undisclosed drawings and the impugned finding on such wrong assumption is wholly arbitrary, unreasonable and perverse. | |
| 6. | FOR THAT none of the conditions precedent existed and/or have been complied with and/or fulfilled for the Ld. Commissioner of Income-tax (Appeals) Asansol to assume jurisdiction u/s. 251 of the Income-tax Act, 1961 in the facts and circumstances of the instant case and the specious action on that behalf is altogether arbitrary, unreasonable and perverse. | |
| 7. | FOR THAT the Ld. Commissioner of Income-tax (Appeals) Asansol erred in resorting to the impugned enhancement in the sum of Rs. 60,63,926/- by invoking the provisions of s. 68 of the Income-tax Act,1961 under the scope of s. 250(4) of the Income-tax Act, 1961 without judiciously applying his mind on the issue in considering the source of such deposit have been proved on record and the purported action on that behalf is ultra vires, ab initio void and perverse." |
3. Brief facts leading to the above appeal are that the assessee is an electrical contractor carrying out Government as well as private contracts. The type of work includes several electrical projects getting temporary and permanent electric connection from West Bengal State Electricity Board (WBSEB) at different sites all over the West Bengal. The assessee to carry out the above projects and in pursuance of this work purchase material, employ labour on wages at specified sites etc. The AO during the course of assessment proceedings made various disallowances and additions as under:
| (i) | 10% of expenses claimed under the head purchases were disallowed at a sum of Rs. 7,60,963/-. | |
| (ii) | 10% of expenses under the head wages at Rs. 2,56,145/-. | |
| (iii) | 20% of expenses claimed under the head travelling and conveyance , other indirect expenses, entertainment and telephone and mobile at Rs. 1,22,976/-. | |
| (iv) | Further addition of Rs. 1,04,529/- being unexplained investment u/s. 69 of the Act. | |
| (v) | Further addition of Rs. 4,08,960/- on account of undisclosed drawings. |
4. The disallowances made by AO and enhancement made by CIT(A) is as under:
| Expenses Accounts Head | Expenses debited as pr P&L A/c | Disallowed by AO | Percentage | Enhanced by CIT(A) | Total expenses disallowed |
| Opening stock & WIP | 617,052.00 | ||||
| Purchase | 7,608,627.00 | 760,963.00 | 10% | 6,702,331.00 | 7,463,294.00 |
| Wages | 2,561,458.00 | 256,145.00 | 10% | 2,311,313.00 | 2,567,458.00 |
| Travelling & Conveyance | 186,970.00 | 37,394.00 | 20% | 149,576.00 | 186,970.00 |
| Other Indirect Expenses | 85,685.00 | 17,137.00 | 20% | 68,548.00 | 85,685.00 |
| Entertainment expenses | 215,685.00 | 43,137.00 | 20% | 172,548.00 | 215,685.00 |
| Telephone & Mobile Expenses | 125,636.00 | 25,127.00 | 20% | 100,509.00 | 125,636.00 |
| Salary & Wages | 187,540.00 | Nil | 187,540.00 | 187,540.00 | |
| Interest on Loan | 280,588.00 | Nil | 280,588.00 | 280,588.00 | |
| Other expenses | 359,292.00 | - | - | - | - |
| 12,228,533.00 | 1,139,903.00 | 9,972,953.00 | 11,112,856.00 |
From the above disallowances and enhancement, it is to be first noted that the total contract receipts during the year received by assessee are at Rs. 1,15,38,537/- and closing stock and work in progress is at Rs. 12,70,356/-. Aggrieved against enhancement and confirmation of additions and disallowances, by CIT(A), assessee came in appeal before us.
5. We have heard rival submissions and gone through facts and circumstances of the case. We have perused the material placed before us including assessee's paper book containing pages 1 to 101. We find that the assessee's total contractual receipts are at Rs. 1,15,38,537/-and assessee has claimed expenses on account of purchases for executing his electric jobs/contracts at Rs. 76,08,627/-. Similarly, the assessee has incurred wages expenses at Rs. 24,61,458/-. Similarly, assessee has claimed expenses on account of telephone and mobile at Rs. 1,25,636/-, on entertainment at Rs. 2,15,685/-, on travelling and conveyance at Rs. 1,86,970/- and further Rs. 85,685/- as other expenses. As noted above in the chart, the AO has made disallowance of 10% expenses on all these items and also made addition on undisclosed RD at Rs. 1,04,529/- and personal drawings at Rs. 4,08,960/-. The CIT(A) enhanced these expenses. The assessment was framed by AO u/s. 143(3) of the Act and assessee has produced all regular books of account like cash book, ledger and bank statements etc. However, he failed to produce, on requisition made in respect of various parties, from whom purchases were made and to whom the payments were made during the relevant period. In the absence of the same, the AO disallowed 10% of wages, purchase and some expenses. The AO also made addition on account of undisclosed recurring deposit and assessee's claim was that this amount was transferred by cheque from Current Account No. CC1033 maintained with Oriental Bank of Commerce, Asansol Branch. A copy of current Account was submitted before the AO and assessee tried to explain the same that this is out of explained sources. As regards to addition made on account of personal drawings by the AO at Rs. 4,08,960/- assessee explained that this amount of Rs. 6,20,757/- was transferred in this account is not correct. Actual amount transferred is Rs. 4,45,460/- to this account from current account No.094010200011060 and subsequently it was transferred to his current account. Other cash deposit was made by withdrawn of cash from Oriental Bank of Commerce, Asansol Branch vide A/C No. CC1033. That assessee is an Electrical Contractor of WBSEB and other Government organization, so he has to perform his job all over West Bengal in different sites. Since Oriental Bank has no infrastructure for immediate transfer of funds in different area, assessee was constrained to deposit cash in this account and made payment to parties for immediate transfer of funds. As such there was no concealment of account from any part of the assessee. CIT(A) apart from confirming the additions enhanced the assessment on account of disallowance of expenses at Rs. 9,59,309/- unproved purchases was added in entirety that at Rs. 67,02,331/-. Even the CIT(A) has enhanced the addition on account of unproved wages expenditure at Rs. 23,11,313/- that means the entire wages are disallowed. The CIT(A) also enhanced unexplained cash credits/deposits or credit by transfer as unproved and made addition of these transfers at Rs. 60,63,926/-.
6. Going into the entirety of the case and facts before us, we find that the assessee is a contractor carrying out Government as well as private contracts. The gross contract receipts of the contractor are at Rs. 1,15,38,537/- . Can the assessee carry out contract work of electrical and other undertakings for infrastructure projects without purchase or without incurring any wages? The assessee has produced complete books of account before the AO but without supporting vouchers. Even the unexplained credits/transfer entries/deposits in the bank account are inter deposits of business and these are nothing sort of cash credits or unexplained credits. When these were confronted to Ld. Sr. DR, he could not explain how the entire addition is made and what is the basis of the same? When second opportunity was given, Ld. Sr. DR again could not support either the assessment order or order of CIT(A) but only argued that since the books of account were not supported by vouchers the AO and CIT(A) has disallowed the expenses, charges and unproved credits/transfers/deposits in the hands of the assessee. We find that the assessee's total contract receipts are at Rs. 1,15,38,537/- and addition including enhancement by CIT(A) stands at Rs. 1,60,36,879/-. It is not the case of the revenue that these deposits/unproved credits/transfer are not related to business transactions rather the assessee's counsel has filed a complete chart before us stating that the entire deposits/transfers/credits are proved and these are related to business transactions only and out of contract receipts. In such circumstances, can we uphold the assessment order or order of CIT(A)? In our view no, the answer to above queries is negative. We further find that the assessee before us has produced copy of Tribunal's order in assessee's own case for AY 2003-04 in ITA No. 1833/K/2007 wherein assessee has challenged the net profit rate applied by AO and confirmed by CIT(A) at 5.35% by rejecting the books of account in the absence of the vouchers and following ground was raised by assessee:
"(ii) For that on the facts of the case the Ld. CIT(A) was not justified in sustaining the estimate of Net Profit @ 5.35% of Gross Contract Receipt made by the AO, on an ad hoc basis, rejecting the book results."
and Tribunal considered the application of profit at 5.35% at para 3 of its order as under:
"In the course of assessment proceedings the A.O. found that even bills produced as evidence of purchases did not have any reference or bill numbers while expenditure in respect of items like labour charges entered in the cash book did not tally with the vouchers produced as evidence of payments. No stock register was maintained. No payment certificates as evidence of earnest money and security were produced by the assessee. When asked to explain these issues, the assessee submitted to the A.O. that the accounts were duly audited and that the auditor had gone through all the bills vouchers and relevant papers. However, the assessee found it difficult to collect the relevant papers from various sites for production before the A.O. The assessee further submitted that the work was carried at various locations, papers were destroyed by "natural climate" or the ignorance of illiterate workers. Since bulk of the papers required by the A.O. had been produced the assessee requested the A.O. to consider this as compliance. The A.O. however rejected the assessee s books of account, having further found that the assessee was not even able to reconcile variation in the OD balance statement in respect of the assessees account. Thereafter, the A.O. compared the assessees profits returned in the earlier years and pegged the profit for the year in question also at the same level."
and rejected the claim of assessee for accepting the book results and upheld the application of net profit rate at 5.35%.
7. In view of factual matrix of the case, we are of the view that in the absence of supporting material of the books of account i.e., bills and vouchers the assessing authority should have rejected books of account and should have framed assessment in terms of sections 144 & 145 of the act and for that Assessing Officer must act honestly and not vindictively or capriciously because he must exercise judgment in the matter but from records it is evident otherwise. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In making a best judgment assessment the Assessing Officer does not possess absolutely arbitrary authority to assess at any figure he likes and that although he is not bound by strict judicial principles he should be guided by rules of justice, equity and good conscience. A best judgment assessment is not by way of penalty for non-compliance and it cannot be made capriciously in utter disregard to the material on record. At the same time, there is nothing in the language of section 144 or 145 of the act for holding that an assessment made by an officer under these sections without conducting a local enquiry and without recording the details and results of that enquiry cannot have been made to the best of his judgment within the meaning of that section. The best judgment assessment ought to be based on a fair and proper estimate of the assessee's income and the inferences to be drawn from the available material should be properly inferable inference. The assessment has to proceed upon definite basis or data as in the case of an assessment after enquiry, but the enquiry is summary unlike the case of a normal assessment. The assessment is to be based on materials to the extent to which the materials are discovered. In other words, the Assessing Officer, while making a best judgment assessment, should make an intelligent, well-grounded estimate. Such estimate must be based on adequate and relevant materials. If more than one method or approach is possible, any alternative method can be resorted to estimate the quantum in a best judgment assessment. The quantum to be made in a best judgment assessment should be rational and fair in all circumstances of the case.
8. From the above discussion, we are of the view that a reasonable estimate can be made and the assessee might have made purchases without procuring bills and might have avoided sales tax and other Government dues. It means that assessee might have earned a little higher profit than earlier years. We have seen that Tribunal has confirmed the application of net profit at 5.35% in earlier year i.e. in AY 2003-04. Keeping in view net profit of earlier years, we are of the view that a reasonable net profit i.e. @ 8% will meet the end of justice. Accordingly, we direct the AO to recompute the assessee's income after deleting all the additions as made by AO and enhanced by CIT(A) but restrict the addition only at 8% of gross contract receipts. It is also mentioned that this net profit rate at 8% cannot be taken as reference to any other years, if facts are not identical or assessee claims that assessment be framed on the basis of accounts, if accounts are found correct.
We order accordingly.
9. In the result, appeal of assessee is allowed partly, as indicated above
10. Order pronounced in the open court on 18th June, 2013
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
[2013] 36 taxmann.com 412 (Article)
SECTION 44AA(2) IS BEING MISINTERPRETED
GAURAV PAHUJA
CA
Introduction
1. In this article, the requirement of maintaining books of accounts under section 44AA of the Income-tax Act, 1961 is discussed in-depth, especially with regard to a civil contractor in respect of which no books of account are prescribed and, hence, the questions of levy of penalty under section 271A for non-maintenance of books of account and the penalty under section 271B of the Act for not getting the books of account audited do not arise. Further, a few significant judgments have been referred to, including the critical analysis of the recent judgment delivered by the Hon'ble ITAT Cochin Bench in the case of K.V. Ramachandran v. Dy. CIT [2013] 32 taxmann.com 200.
Facts of the case
2. K.V. Ramachandran's case (supra).The assessee, a civil contractor, engaged in government contracts, did not maintain any books of account due to the fact that no books of account had been prescribed for a civil contractor. In view of this, it was submitted that the assessee was not guilty of non-compliance, as far as the provisions of the Income-tax Act were concerned. Although CIT(A) had already deleted the penalty under section 271A for non-maintenance of books of account after considering the judgment pronounced in the case of Asstt. CIT v.Aggarwal Construction Co. [2007] 106 ITD 129 (Chd.)(TM), yet the penalty under section 271B for not getting the books of account audited was affirmed by him. Thus, in the appeal before the ITAT it was argued that once the penalty for non-maintenance of books of account was held to be invalid in the absence of any prescribed books of account for a civil contractor, the penalty levied for not getting the books of account audited should also have been quashed. It was submitted that the question of audit arises only in a case where the books of account are maintained. The reliance was placed on the judgment pronounced by the Karnataka High Court in the case of CIT v. Babu Reddy[2010] 38 DTR 147 and on the decision of the Chandigarh Bench of ITAT in the case of Aggarwal Construction Co. (supra) and on the judgment of the Pune Bench in Ramchandra D Keluskar v. Dy. CIT [ITA No. 668/PN/10, dated 17-1-2011].
The DR, on the other hand, reiterated the requirement of section 44AB of the Act for obtaining the audit report and, thus, stated that the plea of the assessee, that no books of account were maintained, was not acceptable.
Critical analysis of the case
3. The significant question of law that arose in the aforementioned case was with regard to the justification for imposition of penalty under section 271B of the Act for not getting the books of account audited in a case where no books of account were maintained by the assessee. Although, the question was directly related with getting the books of account audited under section 44AB, at the same time it was indirectly but very closely related to the requirement of maintenance of books of account.
One cannot get the books of account audited, until and unless such books are maintained. So, the question of levying penalty for not getting the books audited must not be considered in isolation, but with more stress upon the requirement of maintaining the books of account as prescribed by section 44AA of the Act. The said section provides for the assessees who are required to maintain the books of account based upon the nature and size of the business and profession carried on by them and in few cases, the books of account are also prescribed. For the sake of ready reference, the relevant extract of section 44AA is reproduced below:
"44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act.
(2) Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall,—
| (i) | if his income from business or profession exceeds [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds [ten lakh] rupees in any one of the three years immediately preceding the previous year; or |
………
………
keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act.
(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained."
Sub-section (1) of section 44AA provides that books of account are to be maintained by assessees carrying on a specified profession while sub-section (2) of section 44AA is meant for other assessees, i.e., those who are not covered by sub-section (1), meaning thereby that all assessee(s) carrying on business or professions are required to maintain the books of account, depending on the sub-section applicable to their respective business or profession. However, in those cases where sub-section (1) is applicable, the books of account that are required to be maintained are prescribed under rule 6F of the Income-tax Rules, whereas assessees covered by sub-section (2) are required to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act, in the absence of any prescribed books of account (unlike for assessees covered by sub-section (1)), as is clearly evident from a plain reading of the section. Further, it is apparent that the business of a civil contractor is not within the ambit of sub-section (1), thus, no books of account are prescribed under rule 6F to be maintained by a civil contractor. Obviously, in such a situation one has to go to sub-section (2) which covers assessees who are not specifically covered by sub-section (1). Moreover, sub-section (2), subject to the monetary limits provided therein, requires an assessee to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act. Hence, it is nowhere in dispute that the Legislature expects even a civil contractor to maintain books of account by virtue of section 44AA(2).
In view of the facts of the instant case and the above mentioned intention of the Legislature, it is not required to go in-depth of rule 6F, being non-applicable here, but what gains much more importance is section 44AA(2) which covers the remaining assessees, including a civil contractor. It has already been stated that the Legislature aimed to make all assessees to maintain at least some books of account to enable the Assessing Officer to compute his income. Sub-section (2) was inserted to achieve the same purpose. Although such minimum books of account are not prescribed exactly anywhere, yet section 44AA(2) has made it amply clear that whatever books of account are maintained by the assessee in the absence of any prescribed books of account, it must enable the Assessing Officer to compute his income. Accordingly, where it is stated unconditionally that the assessee did not maintain any books of account, as in the instant case, it seems to be in clear contravention of section 44AA(2). Had the Legislature intended to provide or prescribe books of account for each and every assessee, as is done in the case of specified professions mentioned in sub-section (1) of the said section, it would not have provided sub-section (2) to cover the remaining assessee's who are not covered under sub-section (1). Furthermore, where the Legislature intended to provide the relaxation from maintaining the books of account, such relaxation was granted by way of fixing the monetary limit as provided under section 44AA(2)(i). Hence, where an assessee's income or gross receipts from business or profession exceed such limit, he has to maintain minimum books of account to enable the Assessing Officer to compute his income. Even the Legislature provided for consideration of the three years immediately preceding the previous year. Needless to mention here that the Legislature was so cautious while framing the rules with regard to the maintenance of books of account that it firstly covered few professions expressly and prescribed the books of account to be maintained by such professionals, then covered the remaining businesses and professions to maintain such books of account so as to enable the A.O. to compute their income and even in doing so it provided relief to small businessmen and professionals by way of fixing cap thereon. So, the Legislature has taken every possible step to make its intention clear with regard to maintaining books of account in all respects, e.g., by whom and what books of account, where it is prescribed specifically and minimum books of account where it is not so prescribed with the intended purpose to compute income.
While such minimum books of account are not defined or prescribed by the CBDT, it would be preferable only to prescribe the so-called minimum books of account to avoid any confusion and provide absolute clarity as to what books of account are to be maintained by those assessees who are not covered under section 44AA(1), but it is not necessarily required to enable the public at large to comply with the Act in this respect. If at all CBDT has not prescribed the minimum books of account and has left it at the option of desired category of assessees, it must be aimed at providing the flexibility to the assessees simultaneously entitling the A.O. to cause the production of reasonable records and information so as to enable him to compute the income of the assessee.
4. Relevant Case Laws and comments
4.1 Babu Reddy (supra) -In this case it was observed that it was nowhere in section 44AA that the books of account had to be maintained as per the prescribed format. Also, books of account to be maintained had to be prescribed, but such books of account had not been prescribed under the Income-tax Rules, as far as the business of a civil contractor was concerned. In addition, it was stated that the Tribunal had allowed the appeal of the assessee on the ground that when no books of account had been prescribed, the books of account that were maintained by the assessee, could not be found fault with. Moreover, it was concluded that once the A.O. had accepted the return of income filed by the assessee and had processed the same, subsequent initiation of penalty for non-maintenance of books of account was not justified.
4.1-1 Comments - The decision of the Tribunal in this case seems to be absolutely in line with the law to the extent that maintenance of books of account is concerned, as an assessee can maintain such minimum books of account only so as to compute his income as no books of account to be maintained are prescribed. Therefore, the said case stands on a different footing and, thus, should not have been relied upon by the assessees counsel in the present case. Even if it was so relied upon, it must not have been accepted by the Tribunal to the extent the question of maintenance of books of account was concerned due to the very difference in the facts of the case whereas in the case of Babu Reddy (supra), it was stated that the assessee had maintained minimum books of account so as to compute his income and his contention was accepted in the absence of any prescribed books of account while in the present case of K.V. Ramachandran (supra), it was clearly declared by the assessee's counsel that the assessee did not maintain any books of account. The contention behind not maintaining any books of account was explained as no books of account were prescribed by the CBDT in respect of civil contractor. Moreover, the case ofBabu Reddy (supra)was also related to a civil contractor, but as minimum books of account were maintained in that case, the Hon'ble Karnataka High Court dismissed the appeal of the revenue against the assessee and upheld the order of the Tribunal which was in accordance with the principles of natural justice. Hence, in the present case, in the absence of any books of account the relief must not have been granted to the assessee relying upon the judgment pronounced in the case of Babu Reddy (supra).
4.2 Aggarwal Construction Co. (supra) - In this case which was decided by a Third Member, in the absence of consensus between the opinion of the Accountant and Judicial Member, it was mentioned that finding recorded by the A.O., that no books of account were maintained by the assessee, was found to be baseless, as it was not recorded in the assessment order that the A.O. was unable to compute the income of the assessee from the ledger maintained by the assessee, especially when it was admitted that income and expenditure were available in that ledger. It was concluded that section 44AA(2) does not require that the books of account maintained should be true and correct. Whenever a false claim is made by the assessee, the same is liable to be rejected, but even in that case it cannot be said that no books of account were maintained or A.O. was unable to compute the income of the assessee. In short, provisions of section 44AA cannot be said to have been violated, as in order to cover the case of false accounts separate provisions are there under section 271. Hence, provisions of one section, for example, section 271A cannot be clubbed or substituted by the provisions of any other section, say section 271 or vice versa.
4.2-1 Comments - In view of the fact that the assessee in the above case had maintained a ledger mentioning the income and expenditure, so as to enable the A.O. to compute his income, the finding of the A.O., that no books of account were maintained, was set aside by the Chandigarh Bench of ITAT. Thus, this case like the case of Babu Reddy (supra)should not have been relied upon by assessee or ought to have been rejected, as far as the question of maintenance of books of account was there due to the fact that here also at least minimum books of account were maintained to facilitate in computing the income.
4.3 Ramchandra D Keluskar (supra) - In this case also like in the present case, the issue of not getting the books of account audited came up before the Tribunal and that too in the case of an assessee who happened to be a civil contractor engaged in Government and Municipal contracts. Another similarity in the two cases was that no books of account were maintained by any of these two assessees and the return was filed on estimation basis only.
4.3-1 Comments - One difference in the two cases was that whereas in the case of Ramchandra D. Keluskar (supra),the issue of non-maintenance of books of account was not raised at all by the A.O., while in the present case i.e.,K.V. Ramachandran (supra),the issue of non-maintenance of books of account was well raised by the A.O. and, accordingly, he initiated the penalty under section 271A which was later on deleted by the CIT (A). The case of Ramchandra D Keluskar (supra) was decided by referring to the judgment of the Hon'ble Gauhati High Court in the case of Surajmal Parsuram Todi v. CIT [1996]222 ITR 691and the Hon'ble Allahabad High Court in the case ofCIT v. Bisauli Tractors [2008] 299 ITR 219/[2007] 165 Taxman 1and it was held that where no books of account are maintained by an assessee, the question of getting the books of account audited does not arise at all. The Hon'ble Allahabad High Court observed as under:
"If a person has not maintained the accounts book or any accounts the question of its audit does not arise. In such an event the imposition of penalty under the provision contained in section 271A of the Act for the alleged non-compliance of section 44AA of the Act may arise but the provisions of section 44AB of the Act do not get violated in case where the accounts have not been maintained at all and, therefore, penal provisions of section 271B of the Act would not apply."
In view of the abovesaid judgments, penalty imposed under section 271B was quashed.
Conclusion
5. In the present case, the issue whether the books of account ought to have been maintained under section 44AA(2) by a civil contractor was raised up to the level of the CIT(A) only and not before the ITAT. CIT(A) had concluded that books of account were not required to be maintained in the absence of any prescribed books of account and, thus, penalty raised by the A.O. under section 271A was deleted, but penalty under section 271B was confirmed by him. Had the issue of non-maintenance of books of account been raised before the ITAT by way of an appeal from revenue, it would have definitely decided the case otherwise, i.e., it would have confirmed the penalty under section 271A after considering the true intention of the Legislature (as stated above) behind insertion of section 44AA(2). Consequently, the assessee would not have been able to safeguard himself against the penalty imposed on him under section 271B, as one must not be allowed to take the advantage of his own wrongdoing.
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